THE EFFECT OF BORROWERS-MANAGERS ASYMMETRIC INFORMATION ON NON-PERFORMING LOANS IN COMMERCIAL BANKS IN KENYA

SIMION KIRUI, JOSHUA MATANDA WEPUKHULU, PhD, OLUOCH OLUOCH, PhD — Thu, 24 Oct 2024 23:14:57 -0500

Non-performing loans has persistently rise in commercial banks in Kenya and it is perceived that borrowers-managers asymmetric information is the cause. Previous studies have focused on different aspects of macroeconomic and micro economic factors but non-performing loans has continue to rise aspiring need to look at the effect of micro-economic or bank specific factor such as borrowers-managers asymmetric information on non-performing loans. Previous studies that looked at borrowers-managers asymmetric information between borrowers and lenders focused on adverse selection of borrowers as main cause of nonperforming loans and not in context of management moral hazards, management opportunism and transaction costs economic theory. For bank size even though bank is associated with economies of scales and efficiency, the moderating effect of bank size in borrowers-managers symmetric information on non-performing loans remain a puzzle. This study investigated the effect of borrowers-managers asymmetric information on non-performing loans in commercial banks in Kenya. This study also looked into the moderating effect of bank size on the relationship between borrowers-managers asymmetric information and non-performing loans. A descriptive survey research design was adopted with use of panel data. Secondary data for analysis was obtained from financial statements of commercial banks and central bank of Kenya supervisory reports. Time scope covered 10 years from 2013 to 2022 as the period is recent and there was enough data available and reliable for the study. Geographical scope was the 39 Commercial banks licensed and operating in the republic of Kenya. Non-performing loans was measured using non-performing loans to total loans. The study used interest rate spread to measure borrowers-managers asymmetric information. Bank size measured by logarithm of total assets was used as moderating variable in the study. The research established that borrowers-managers asymmetric information had significant effect on non-performing loans in commercial banks in Kenya . The study however confirmed that there was no significant moderating effect of bank size in the relationship between borrowers-managers asymmetric information on non-performing loans.

THE IMPACT OF INFLATION BASED VALUE ADDED TAX REFORMS ON PRICE STABILITY IN SUGAR FIRMS

HILLARY OCHIENG AWUONDA, BENJAMIN OMBOK, PhD — Sat, 16 Nov 2024 22:25:32 -0600

Price stability refers to a condition where money maintains its value over a considerable period of time, by allowing money to mitigate cost efficiency, control inflationary trends and maintain economic developments, and investments. It is the reigning general price level in an economy, essential for fostering sustainable economic growth, reducing uncertainties, enhancing investment, and supporting long-term planning for households and businesses. Over the period 2019 to 2023, significant price fluctuations have been observed in the sugar sector, presumably attributed to implementation and compliance with aspects of VAT reforms (2018); including standardization of VAT rates at 16% and the expansion of the VAT base, with apparent increased cost of production inputs, such as fertilizers and machinery. Despite VAT reforms being implemented to enhance revenue collection from the proportionate cost to product values on marketed goods and services, it is unknown how compliance to the VAT reforms affect price movement in the economy. Specifically, there has been continued instability in sugar prices, affecting both producers and consumers’ returns and investment in the sugar sector. The purpose of this study is to assess the effect of Inflation based Value Added Tax (VAT) reforms on price stability within the sugar firms in western Kenya. The study will adopt a descriptive and causal-comparative research design. Census survey was employed to collect secondary data for the study. Secondary data, consisting of relevant inflation to sugar sector; consumer price sensitivity, input cost inflation, compliance cost, operation expense, input cost variation, administrative cost compliance, tax reporting efficiency, price volatility index, supply demand balance in the sugar industry. With data collected from key personnel from twelve sugar firms, each having 5 respondents, resulting in sixty respondents in total. Consisting of general managers, production managers, finance managers, and sales). The regression model showed a strong relationship, with an R Square of 0.624, indicating that 62.4% of the variance in performance is explained by the predictors. Inflation-based VAT reforms (B = 0.633, Beta = 0.297, p = .004), The study concludes that VAT reforms significantly impact performance, recommending a continued focus on targeted VAT adjustments to enhance stability in the sugar industry. The significance of this study lies in its potential to provide policymakers and industry stakeholders with empirical data on the effectiveness of VAT reforms, offering recommendations for more targeted tax policies that promote price stability and economic resilience in the sugar industry. This research is crucial as it addresses a gap in sector specific studies on how macroeconomic policies like VAT reforms directly impact pricing mechanisms in Kenya's sugar industry.

Reviewed Journal International of Financial Management

THE EFFECT OF BORROWERS-MANAGERS ASYMMETRIC INFORMATION ON NON-PERFORMING LOANS IN COMMERCIAL BANKS IN KENYA

THE IMPACT OF INFLATION BASED VALUE ADDED TAX REFORMS ON PRICE STABILITY IN SUGAR FIRMS